AMP Ltd (ASX: AMP) might present a curious case for investors. On the one hand, it has committed to return capital to shareholders through share buybacks, but it did not declare a dividend in 1H FY22.
So why did the financial services company decide on this course of action?
One explanation is that AMP had other priorities. A focus for the first half of FY22 was to pay down debt on its balance sheet. It allocated $400 million for this purpose from the $1.5 billion total surplus capital for the reported period.
However, some analysts have forecast changes to AMP’s capital position. Bloomberg analysts Matt Ingram and Jack Baxter believe AMP will successfully sell off some of its assets and then reroute the funds back to investors in the form of dividends later this year.
An AMP dividend still might be a possibility for FY22
The Bloomberg analysts believe AMP will not only resume paying dividends, but its dividend yield will be considerably higher than previous forecasts.
The pair said:
AMP may achieve 15% dividend yield this year vs. consensus’ 3%, despite stating it’s not in a position to resume regular payouts to ‘hold a strong capital position’. This curbs our expected A$1 billion 2022 payout and more than 20% yield. Yet yield will get a boost on its plan to return a majority of proceeds from the sale of Collimate Capital businesses, which we think could top A$500 million.
While this prediction did not come to fruition in 1H FY22, we have the rest of the year to go, so its final results may surprise investors.
In the meantime, AMP will continue to buy back its shares from the market until June 2023. Last month, the company announced it will buy $350 million worth of its shares as part of a $1.1 billion capital return package.
AMP share price snapshot
The AMP share price is up more than 10% year to date. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down around 13% over the same period.
Shares in the company are currently trading for $1.1025 apiece, down 1.12%, while the benchmark index is up 0.2% in early morning trading.
AMP has a market capitalisation of around $3.61 billion.
The post Why is AMP doing a share buyback but not paying dividends? appeared first on The Motley Fool Australia.
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Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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